After World War II, the U. S. dollar replaced gold as the reserve currency because of the dominance of the United States in the world economy.
When the dollar is linked to gold, the Federal Reserve cannot finance federal government deficits by printing excessive amounts of money.
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Note each foreign central bank such as China, India and Russia just to name 3 of the BRIC aristos, who continue to amass gold as a currency reserve instead of the dollar or the euro.
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But in 1969, as the strains between America's budget deficit and the dollar's gold peg emerged, an artificial reserve asset was created: the Special Drawing Right (SDR), run by the IMF.
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Just as central banks in China, India, Russia and many other nations view gold as a monetary reserve protection against the falling dollar, major academic institutions are looking for new asset classes like precious metals and commodities to produce returns that can be put to work as a source of funds for a large portion of college operating expenses.
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But the international supply of two key reserve assets gold and the U.S. dollar proved inadequate for supporting the expansion of world trade and financial development that was taking place.
The renminbi might well make a fine regional reserve currency, but the global reserve currency system is likely to gravitate towards a combination of gold, dollar, yen, renminbi and perhaps even oil.
China is preparing for a world beyond the inconvertible paper dollar, a world in which the renminbi, buttressed by gold, becomes the dominant reserve currency.
Yet it is the reason government spending has blown past budgetary constraints, revenue downturns, and public outrage since the last check on Federal Reserve dollar-printing ended in 1971 with the demise of the Bretton Woods gold exchange standard.
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